Taxes And Dual Citizenship

Par David T. Jones
le 14 septembre 2014

Washington, DC - Everybody despises taxes. The standard lament is “Nothing is inevitable but death and taxes.”

At best taxpayers put a good face on the process, accepting that taxes are a necessary element of civilization. At a minimum, virtually all agree that we require taxes for security from foreign invasion and to protect against home invasion. On a national and local level, security is an accepted use of taxes.

Other than security, however, there is endless argument regarding whether a service or benefit (education, health, postal delivery, water purification, disease eradication, transportation, infrastructure) should be paid by government taxes or private funding.

But whenever “taxes” are decided as the source of funds for such action, the demand by those being taxed is that they be “fair.”

And there is the rub. Another classic observation, attributed to long-time U.S. Senator Russell Long, was “Don't tax you, don't tax me, tax that fellow behind the tree!” In other words, find a tax source generating the most revenue that causes the least pain to implement and collect.

For the United States, the point is clear. If you are a citizen, your income is subject to taxation wherever you reside. We regard this approach as “fair” as every citizen benefits—and every citizen pays. There may be codicils, e.g., exemptions for members of the armed forces assigned in combat zones, and credits accorded for income taxed in one state prior to moving to another state, but essentially, if you have income and are a U.S. citizen, it is subject to taxation.

The problem arises for individuals that are dual nationals, i.e., they are citizens of two (or more) countries and, in this specific case, citizens of the United States and Canada. They have “rights” accruing from both citizenships, but also responsibilities to both. Primarily such dual nationals are interested in benefits and seek to avoid responsibilities. The proximity of our nations has resulted in significant numbers of dual nationals, frequently from “accidental” birth in the country during temporary residence there. Sometimes, the individual doesn’t even know of the second citizenship until a bureaucratic requirement (obtaining a passport; a work permit; etc.) brings it to official and personal attention. The most obvious recent example is U.S. senator from Texas (Ted Cruz) born in Calgary of a U.S. citizen mother and hence both a Canadian and a U.S. citizen.

As one of the responsibilities of citizenship is paying taxes, the USG seeks information on the earnings of citizens living outside U.S. territory to levy taxes. This has directly affected uncounted numbers of Canadians, many largely if not totally ignorant of their U.S. citizenship, e.g., born in the USA while parents were students and returned to Canada as a young child and never subsequently returning. Indeed, there is no official USG estimate of the number of individuals with U.S. citizenship in Canada and the best available guess is between two and four million with no differentiation between dual Canadian-U.S. nationals and those with U.S. citizenship only (tourists, students, business visitors, long term residents).

However, regardless of how apparently peripheral the connection, these individuals owe taxes to the U.S. Treasury. And recently, the Treasury—for decades having ignored such peripheral citizenships—has begun to demand tax payments.

Naturally, Canadian-American dual nationals are whining.

For generations such dual nationals have enjoyed, implicitly or explicitly, the rights of U.S. citizenship. If they travel overseas, they have the protection of and assistance from the U.S. embassy in case of emergency. There is no question regarding their right to enter the United States—a citizen cannot be denied entry. They have no restrictions applying to U.S. schools or universities or seeking/obtaining financial assistance. They have no limitations on job applications; they can enlist in the U.S. armed forces without special provisions, hold U.S. security clearances for confidential positions, and work for the USG without restriction.

But if their U.S. citizenship weighs heavily on their lives or they want to be “totally Canadian,” they can renounce U.S. citizenship. It must be done formally through a U.S. consulate/embassy (and there is an application/processing fee), but any tax obligations must first be satisfied.

Canada has chosen not to obligate its citizens living overseas. Hence Canada evacuated Lebanese-Canadians from Lebanon during the 2006 fighting with Israel—at no cost to these citizens. Many of these evacuees immediately returned to Lebanon—where they pay no Canadian taxes. Some would say Ottawa has acted in a humanitarian manner. Others might just mouth sotto voce, “Sucker!”